I'm new to this board, and I'm not a retired fool, but I wanted to share a friend's career and life-changing event with you.

We just celebrated her 45th birthday this past September. She was a manager at IRS in one of their Auditing divisions. She had over 26 stellar years (promotions galore) of service!

Due to Federal budget problems, her entire division is being obsorbed into one location back East (Virginia, I think). She didn't want to leave California, so she was given an option to either transition into an entirely new career classification, retire with a pro-rated age retirement penalty, or a lump sum severage package. She considered the other classifications, but decided not to accept that option because it would mean a $20,000+ cut in salary. In the end, she chose the penalty pension.

Here's the kicker: Apparently, under this pension system, if she had decided to accept any of the several lower-paying positions she had been offered, her entire 26-years+ pension would be based on the lower pay! The years at $60,000 plus salary would have been forfieted from her future retirement pension distribution equation. Why? The pension system recognizes only the last three years of salary in determining your final pension amount...talk about being kicked at both ends! She also didn't want to spend the next 10 or 15 years trying to get back to where she had already been.

Fortunately she does have savings, but not enough to delay cashing out on her pension. She also didn't "bother" to establish other components to her retirement portfolio (she doesn't have an IRA, didn't particpate in the 403(b), or the 457, etc.). She occasionally purchased EE Savings Bonds.

She officially retires from the IRS today, September 30, 2005. Her 26 years+ pension (with age pro-rated penalty) will be approximately $1,500 a month before taxes. Last year when she was informed of the downsizing, she was in the middle of negotiating an offer on a home. Needless to say, she is now renting a two-bedroom home from a relative who doesn't need the money--the home is mortgage free. She would never have been able to maintain the $2,200+ mortgage if she had gone through with her house purchase last year!

At 45, she's back in the job hunting game. She's enjoying the challenge of trying to find something different and a lot less stressful, but that mindset will soon wear off when her savings have been depleted and her bonds cashed in if she doesn't find something soon to supplement her pension.

We were hoping she would defer her retirement until she reached optimal pension age....but she simply couldn't afford to and that option wasn't available to her.

What did her experience teach me about my own retirement planning efforts?:

1. Don't assume I'm on target just because I'm still with the company I've been with for so many years! A company pension is only as good as when you actually receive the pension...

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